Any Port in a Storm – Recommendations for the ETS reform in trialogues

A combination of elements from the European Parliament and Council ETS positions, if maintained at trialogues, would leave the Emissions Trading System in better shape – though still with further to go to guarantee cost-effective emissions reductions.

Particularly positive would be the Council position on annual cancellation from the Market Stability Reserve (MSR), especially combined with doubling the MSR withdrawal rate.

Sandbag’s new briefing analyses which combination of the current proposals will build the most improved carbon market, and what other amendments should be introduced for a truly functional scheme.

In each case, we’ve tested the robustness of the reforms against different emission scenarios. Our conclusions are:

None of the proposals on the table is robust against all future emission scenarios. The Council position will still fail to tackle the surplus if the emissions in power sector fall faster than expected due to an impact of overlapping policies. Under lower emission scenario we expect a Phase 4 surplus of over 2Bn tonnes in 2030.

None of the proposals would significantly impact the carbon price in Phase 4, beyond changing the trajectory of the price increase. The Council proposal will barely affect the market surplus in the period to 2030.

The EU can avoid the need for future reform by ensuring emissions are not always below the ETS cap – one method would be rebasing the cap to real emissions, as will happen with the Effort Sharing Regulation.

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